Which is the better ASX buy, Allkem or Core Lithium shares?

A young man in a blue suit sits on his desk cross-legged with his phone in his hand looking slightly crazed.A young man in a blue suit sits on his desk cross-legged with his phone in his hand looking slightly crazed.

ASX lithium shares are just all the rage on the share market right now. And why wouldn’t they be? The world is going crazy for electric vehicles (EVs) and lithium is the stuff that makes EV battery engines work.

In a recent investor presentation, Argo Investments Limited (ASX: ARG) demonstrated that global EV sales are expected to climb dramatically from about six million in 2022 to 30 million in 2030.

Consequently, global demand for lithium — while already big now — has a long runway ahead.

The lithium carbonate price has already hit yet another record high this month at US$78,384.93 per tonne.

The consensus among analysts is the long-term price will fall back to US$36,000 per tonne.

Some experts say that’s “far too low” but regardless, it would still be historically high. Two years ago, lithium was going for US$5,435 per tonne.

As a resource-rich nation that is already the world’s biggest lithium exporter, Australia is extremely well-positioned to capitalise on this trend.

Over the next year alone, the federal government forecasts the value of our lithium exports to rise to $13.8 billion in 2022-23, up from $4.9 billion in 2021-22.

Which ASX lithium shares should you buy?

The fun part of this lithium investing craze is that there are many ASX shares for investors to choose from.

On our own stock market, we’ve got pure-play lithium explorers, lithium mining and refining companies, and major miners that have recently diversified into lithium.

Here we pit two of the most popular options against each other. Core Lithium Ltd (ASX: CXO) shares vs. Allkem Ltd (ASX: AKE) shares.

Let’s review some of the key metrics and differences to try and determine which might be the better buy.

Should you buy Core Lithium shares?

Core Lithium shares are the best-performing ASX lithium shares in 2022, up 119% year to date.

In fact, Core Lithium is the fourth fastest-growing share out of the 500 shares that comprise the S&P/ASX All Ordinaries Index (ASX: XAO).

At the time of writing, the Core Lithium share price is $1.38, up 2.2% for the day so far.

The company has a market capitalisation of $2.55 billion.

Core Lithium is a lithium explorer. It is reportedly only months away from first production at its Finniss Lithium Project in the Northern Territory. The mine was officially opened last month.

Core Lithium recently increased its mineral resources and ore reserve estimate for Finniss.

About 80% of planned production from Finniss over its first four years of operations is currently covered by offtake agreements. That’s a great headstart on sales in anyone’s language.

The company’s latest report to the ASX covered the three months to 30 September. Bear in mind that Core Lithium is not yet producing any lithium, so it’s not making any money.

As my Fool colleague Brooke reported:

  • Used $3.75 million of cash in operating activities
  • Used $35.8 million in investing activities, including exploration and the purchase of equipment
  • Ended the quarter with $95.5 million in cash and equivalents

Core Lithium announced a fully underwritten $100 million institutional placement on 30 September. The funds will be used to expand ramp up progress at Finniss.

Should you buy Allkem shares?

Allkem shares are up 32% in the year to date.

The Allkem share price is currently $14.75, up 4.65% for the day so far.

The company has a market capitalisation of $9.21 billion.

One of the biggest differences between Allkem and Core Lithium is that Allkem is producing lithium now.

As my Fool colleague Bernd recently covered, Allkem’s projects are primarily located in Argentina. It supplies lithium carbonate to a variety of industrial and technical sectors.

The miner is among the lowest-cost lithium producers in the world. It aims to triple its production by 2026. Management is aiming for a 10% share of global lithium production over the long term.

Another key difference between Core Lithium and Allkem is that Allkem is making money.

Here are the company’s FY22 results in summary:

  • Revenue up 800% yoy to US$770 million
  • EBITDAIX of US$513.1 million
  • Consolidated net profit after tax (NPAT) of US$337 million, up from a loss of US$89.5 million in FY21

In its September quarter results, Allkem reported group revenue of US$298 million and a cash margin of approximately US$244 million. It reported group net cash of US$447 million, up US$28.9 million on the June quarter. The company revealed some cost pressures, as my Fool colleague James reported.

What do the experts think?

As amateur investors, it’s always a good idea for us to read the experts’ opinions on the ASX shares we’re looking to invest in. The experts can sometimes disagree, but what’s important is learning the information that led to them forming their views. They’re professionals and they’re likely to know more about each company than we do, and they’re likely to have considered factors we might not have thought about.

The Fool routinely reports on ratings changes and buy, sell, or hold recommendations from the top brokerage firms. As my Fool colleague James wrote yesterday, Macquarie is very positive on the outlook for Allkem. It has a 12-month share price target of $21 on Allkem, implying a 42% upside from here.

Last month, another Fool colleague Zach wrote that Refinitive Eikon data shows three out of three brokers covering Core Lithium rate it a buy. The consensus price target among them is $1.60. That implies a potential upside of 16% from here.

Who wins?

It’s impossible to give you all the information you need to make this important decision in one article.

Today, we’ve given you a snapshot of some key metrics and differences between the two companies.

From here, we suggest you read the Core Lithium annual report and the Allkem annual report.

You may find our article ‘How to choose which shares to buy‘ useful.

We also have a report ‘Investing in ASX lithium shares‘ where you can read about other companies in the lithium space.

The post Which is the better ASX buy, Allkem or Core Lithium shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Allkem Limited and Macquarie Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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